Corporate Finance Manual

Debt cap: financial services groups: dealing in financial instruments

The definition of dealing in financial instruments as a qualifying activity

The third qualifying activity is relevant dealing in financial instruments (see TIOPA10/S270). The term dealing is not defined and takes its ordinary day to day meaning of buying and selling financial instruments.

There are two conditions that have to be satisfied:

The dealing is not in the capacity as a broker; the dealing is only a qualifying activity if the dealing is by the group or relevant group company .The term ‘broker’ is defined by paragraph section 270 (3) as a person offering to buy securities from or sell securities to member of the public. The reference to securities should be treated as a reference to financial instruments.

The profits and losses in respect of the dealing form part of the trading profits; the sale of shares in a subsidiary for example is not considered as part of the trading profits (see section 270 (2) (b)).

Section 270 (1) defines a financial instrument as anything that is a financial instrument for the purposes of the FSA Handbook. The glossary section of the FSA Handbook provides details of the type of financial instrument covered. The definition is very wide ranging and is intended to cover all the types of instruments that are likely to be traded by financial services groups such as shares, currency, currency contracts. However the definition in the FSA handbook did not include all financial instruments within the tax regime for derivative contracts, so S269 (1A) expands the definition of financial instrument so it also has the same meaning as in Part 7 of CTA 2009.